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AFC Enterprises, Inc. (AFCE), Yum! Brands, Inc. (YUM): Does This Company Still Have the Secret Sauce?

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AFC Enterprises, Inc. (NASDAQ:AFCE), which owns the Popeye’s Louisiana Kitchen quick- serve chain, once an undiscovered gem, has now soared 66% over the last year.

Love that chicken!
It’s not surprising, as the National Chicken Council reports Americans are the most chicken-loving in the world, eating 83.6 pounds per capita annually — and we love it best fried.

AFC Enterprises, Inc. (NASDAQ:AFCE) has grown its Popeye’s and Popeye’s Louisiana Kitchen restaurants so now competes with the big boys like Yum! Brands, Inc. (NYSE:YUM). Yum! Brands as a global chicken restaurant.

It doesn’t hurt that CEO Cheryl Bachelder learned the trade as a former Yum! Brands, Inc. (NYSE:YUM) executive. The company is mostly franchisee-run and utilizes many of the same tricks as Yum! Brands like special menu items. So far it’s paid off as revenues have grown by 16.3% this last year.

AFC Enterprises, Inc. (NASDAQ:AFCE)The company’s secret sauce is Cajun cooking and fried chicken and it has served AFC Enterprises, Inc. (NASDAQ:AFCE) well, returning 326.9% in share price appreciation since 2008.

On August 20, the company reported strong second-quarter results with an increase of 30% to diluted EPS from $0.27 to $0.35. It also grew free cash flow from $18.2 million in the year-ago period to $21.8 million and now boasts 13 straight quarters of positive comparable-same-store sales. The company also raised guidance to between 3.5% and 4.5% global same-store sales growth.

How high is up
This strength has also led the company to announce more store openings than previously planned. It now expects to debut between 170 and 195 locations in fiscal 2013 with 60 of them international, adding onto the current total of 2,153 restaurants.

The company has been remodeling its stores from Popeye’s to Popeye’s Louisiana Kitchen with close to 80% to be finished in 2014. In an interview on CNBC for Mad Money, CEO Cheryl Bachelder added those remodeled stores get an almost immediate 3%-to-4% rise in comps.

When asked about international growth, Bachelder answered,”How high is up?,”  speaking of the limitless possibilities overseas; Popeye’s is located in 26 countries and 44 US states.

A chicken-wing upstart
But with success comes competition. McDonald’s Corporation (NYSE:MCD) is debuting its own Mighty Wings nationally, chicken wings seasoned similarly to Popeye’s New Orleans style with cayenne and chili pepper. The huge quantity of wings that McDonald’s will need likely driving up prices from $1.44 a pound most recently will of course, affect the entire space including Yum! Brands, Inc. (NYSE:YUM), AFCE, and chicken focused Buffalo Wild Wings (NASDAQ:BWLD)

Burger Business, a trade publication, noted that McDonald’s Corporation (NYSE:MCD) previous test of the wings in Atlanta (AFC Enterprises headquarters) was very popular with consumers and could provide stiff competition. Could McDonald’s have AFC Enterprises, Inc. (NASDAQ:AFCE) in its sights with these New Orleans style offerings at its 14,000 US restaurants?

Sterne Agee analyst Lynn Collier told The Huffington Post keeping Mighty Wings on the menu beyond November would depend upon  chicken wings staying cheap as the company moves away from higher-priced beef offerings.

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